Tax Facts

155 / If income-producing property is transferred to an irrevocable life insurance trust to fund premium payments, does the value of the property constitute a gift?

Generally, the full value of the property, in addition to the value of the policy, constitutes a gift. (But see Q 156, relating to reversionary interest trusts.) Subsequent premium payments by the trustee from trust income will not constitute additional gifts from the grantor. This is true even though the insurance is on the life of the grantor and the grantor remains personally liable for the income tax on the trust income, which may be used to pay premiums.1

1.     Commissioner v. Estate of Beck, 129 F.2d 243 (2d Cir. 1942); Lockard v. Commissioner, 166 F.2d 409 (1st Cir. 1948).

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